Cell Phones Could Connect Consumers to Financial Services in Brazil

BRASILIA–If you don’t have a bank account in Brazil, a not-so-smart cell phone may soon be your first point of entry into the global financial system.

Brazil’s central bank has introduced new rules that could unleash a new wave of mobile payments on a par with services such as M-Pesa, the popular service developed by British cellphone operator Vodafone and deployed across several countries in Africa and most recently in India.

The central bank’s main goal is to extend basic financial services to the many millions of Brazilians who can’t or won’t open a checking account.

“More than 40 million people [in Brazil] use only hard cash. Many have never seen an account statement or never used an ATM,” said Raul Moreira, a spokesman for the Brazilian credit-card trade group Abecs and also head of card products at Latin America’s largest bank, Banco do Brasil SA.

Brazil’s financial industry is dominated by a handful of huge banks with a national presence, but even the biggest ones can’t cover 100% of this continent-sized country. Cellphones, however, are already present where bank branches are not. “It is a revolution in safety and inclusion,” Mr. Moreira said.

Banks and companies will be allowed to offer mobile payment services, allowing customers to pay for everything from taxi rides to groceries to health services and more, using a simple cell phone.

In a twist from a traditional bank account, the money will be held on account at the central bank, and companies and banks can only profit by charging fees, not by lending depositor’s money to other clients, as banks usually do. The central bank says this will protect people’s money and reduce the potential for companies or banks to defraud customers.

Some restrictions will apply to avoid money laundering. People with accounts that handle more than 1,500 Brazilian Reais ($682) will have to provide more personal information.

Companies are allowed to charge fees for the services, but some are likely to offer fee-free accounts to expand customers.

Cellphone provider Claro is testing a program for its customers in partnership with Banco Bradesco SA, one of Brazil’s largest banks. Customers dial a number for the service, and then pick a transaction on an on-screen menu in their cell phone. To transfer, they key in the recipient’s phone number and send.

In a supermarket or store, the seller punches in the purchase information in the credit card machine; a message is sent to the cellphone of the buyer, who puts in a password and completes the transaction. Customers can withdraw cash at Bradesco’s ATMs.

The central bank has a long-standing goal of getting more Brazilians to quit using hard cash, the preferred form of payment in low-income Brazilian neighborhoods where crime is rampant and street robberies are a fact of life.

The central bank hopes that people without access to traditional banks will now be able to get their salaries credited to a virtual wallet on their cellphones.

Brazil’s largest bank in assets, Banco do Brasil SA, in November launched a service for its customers to pay people who don’t have a bank account. The recipient gets a text message that can be used to get cash from a Banco do Brasil ATM.

The central bank believes this will drive more competition in the financial industry. “The potential activity of new agents in this market, including telecom operators, will bring new investment and more competition,” it said.

About Real Time Economics

Real Time Economics offers exclusive news, analysis and commentary on the U.S. and global economy, central bank policy and economics. Send news items, comments and questions to the editors and reporters below or email realtimeeconomics@wsj.com.